Firestone Diamonds Offer For Kopane Diamond -6-

21st Jul 2010 11:55

the exceptionally large size of many of its kimberlites, in particular the 146 hectare MK1 kimberlite, which is one of the largest known diamondiferous kimberlites. Substantial work has been carried out at Tsabong by Firestone, the results of which indicate that the Tsabong kimberlite field is located in a similar geological setting to the major Jwaneng Mine and that it has the potential to contain economic large sized diamondiferous kimberlite deposits. Firestone has also proven its capability in operating diamond projects, having successfully operated the Project Buffels toll treatment project for De Beers in South Africa, and is continuing to develop its toll treatment business. Firestone has several advanced toll treatment opportunities in Botswana and Namibia that have the potential to generate significant cash flow for Firestone. The advantage of cash flow from these projects is that it would not be dependant on rough diamond prices, thus reducing the potential impact to Firestone of any drop in rough diamond prices that could be caused by future economic or stock market volatility. In June 2010, Firestone announced that a decision had been made by Debswana to proceed with the Modular Tailings Treatment Plant at the Jwaneng Mine, with Firestone being responsible for supplying, constructing and operating the MTTP. Debswana is a joint venture between the Government of the Republic of Botswana and De Beers and is the world's leading diamond producer by value. Jwaneng is the largest diamond mine in the world by value and in 2008 produced approximately 13 million carats, with an estimated value of $1.8 billion. Subject to contractual arrangements, which are at an advanced stage, being finalised, and suitable financing arrangements being made for the capital costs of the project, construction is expected to commence in H1 2011 with full production scheduled for 2012. The Jwaneng tailings resource is estimated to be in excess of 30 million tonnes. The MTTP is intended to serve as a pilot facility to demonstrate the economics and capability of the modular plant concept on the Jwaneng tailings resource, and could potentially lead to the deployment by Firestone of similar plants to exploit additional tailings resources at other Debswana mines. With the total tailings resources at Debswana's mines estimated to be approximately 300 million tonnes, the Firestone Directors consider that they represent a significant revenue opportunity. In addition, Firestone has been selected by Namdeb as the preferred supplier and operator for the Dredge and Floating Treatment Plant project at Namdeb's diamond mining operations on the south west coast of Namibia. Namdeb is a joint venture between the Government of the Republic of Namibia and De Beers and is the world's 6th largest diamond producer by value. Firestone and the Namdeb project team are currently working together to revise Namdeb's feasibility study for the project to reflect current capital costs and Firestone's projected operating costs. 7. Information on Kopane Kopane is a diamond company with its principal project at Liqhobong in Lesotho, Southern Africa. Liqhobong is operated by Liqhobong Mining Development Company (Proprietary) Limited, which is 75 per cent. owned by Kopane and 25 per cent. owned by the Government of Lesotho. The Letseng Mine, which is operated by Gem Diamonds Limited, and a number of other kimberlites that are currently undergoing evaluation by other companies, including the Kao and Mothae kimberlites, are also located in Lesotho. The Liqhobong project is comprised of the Main Pipe and the Satellite Pipe, which cover areas of 8.5 hectares and 0.8 hectares, respectively. LMDC has been granted a mining lease by GOL covering an area of 390 hectares in respect of both pipes which expires in August 2017, but is then renewable for a further ten years. Over 350,000 carats of diamonds have been produced at Liqhobong from the commencement of operations at the Satellite Plant in late 2005 up to the suspension of production in December 2008 due to the sharp fall in rough diamond prices at that time. Activities at Liqhobong since then have been focused on completion of the DFS on the Main Pipe, where a resource of some 31.14 million carats has been defined. Preliminary results from the DFS, which is now at an advanced stage, indicate that the Main Pipe is likely to support a substantial, long life mining operation. In December 2009, Kopane's independent mining and geological consultants, ACA Howe International Limited, issued an updated resource statement for the Main Pipe which showed total resources of 90.66Mt at an average grade of 34.3cpht containing 31.14 million carats, with an independent run of mine valuation of US$86 per carat (September 2008 valuation), giving revenue of $29/t and a gross in-situ value of $2.7 billion. Of the Mineral Resources at Liqhobong, 38.54Mt at an average grade of 32.8cpht with contained diamonds of 12.64m carats are in the Indicated Resource category and the remainder are in the Inferred Resource category. With the Firestone Directors' estimated operating costs of $12/t for kimberlite mining in Lesotho (based on Gem Diamonds' costs at the Letseng mine), the Firestone Directors believe that this provides an indication of the significant economic potential at Liqhobong. In considering the merits of the Acquisition and the Scheme, Kopane Shareholders and Firestone Shareholders should not consider the estimated in-situ value of the Main Pipe to be an asset valuation for the purposes of Rule 29 of the Takeover Code. Kopane is currently finalising the DFS for the Main Pipe, which, following the issue of the updated resource statement in December 2009, necessitated a reconsideration of plant design and tailings disposal as a result of the considerably larger kimberlite resource of 90.66 Mt. In parallel with completing the outstanding work on the DFS, Kopane is planning for the recommencement of production at Liqhobong in 2011 employing the Satellite Plant and using diesel-generated power until a connection to the electricity grid is available. Following completion of the DFS Kopane intends to construct a new diamond processing plant, which will be significantly larger than the Satellite Plant and of suitable size to optimally exploit the Main Pipe resource. Kopane's pre-feasibility study in 2007 identified a plant size of 3.5 mtpa although the plant could be in the region of 4 mtpa processing capacity. Estimates for the schedule and cost for construction of the new plant are being made as part of the DFS. The successful development of the Main Pipe will require a connection to the electricity grid operated by the Lesotho Electricity Company. A Memorandum of Understanding between LMDC, the LEC, GOL and Standard Lesotho Bank in respect of funding of the construction of an electrical power line to the Main Pipe was signed in August 2009. Terms for a bank loan to fund the work are in the course of negotiation and tender documents for construction contracts are being finalised. It is envisaged that LEC and GOL will contribute funds towards the cost of the project and GOL will provide a sovereign guarantee to the bank in respect of the loan funding. LMDC will finance the servicing of the loan and its repayment on terms to be agreed. The engineering specifications of the power line, together with environmental impact assessment studies, have been completed in readiness for the start of construction once funding is in place. It is expected that construction will start by the end of 2010, which should allow grid electricity to be available at the mine site by Q1 2012. Kopane also has diamond exploration assets in Finland. These assets are being operated, financed and developed under a joint venture agreement with Mantle Diamonds Limited, but are considered to be non-core and not material relative to the value of Liqhobong and the Acquisition. 8. Directors, Management and Employees The Firestone Directors and the Kopane Directors have discussed Firestone's plans for Kopane management and employees within the Enlarged Group. The Firestone Directors will remain in the same respective positions that they currently hold on the Firestone Board and no Kopane Directors will join the Firestone Board. Each of the Kopane Directors, save for James Cable and Andrew Birnie, will resign from the Kopane Board, conditional upon, and with effect from, the Scheme becoming effective in accordance with its terms. James Cable and Andrew Birnie will each be engaged under consultancy agreements to provide services to the Kopane Group on a part-time basis from the Effective Date. Further details of the termination arrangements and consultancy arrangements for the Kopane Directors will be set out in the Scheme Document. Firestone has given assurances that, following the Scheme becoming effective, the existing employment rights, including accrued pension rights, of Kopane employees will be fully safeguarded and, save in the case of the Kopane Directors as referred to above, its plans for Kopane do not include any material changes in the terms and conditions of employment of Kopane employees. 9. Current Trading and Financial information relating to Kopane and Firestone Firestone For the year ended 30 June 2009, Firestone generated revenue of GBP4.0 million, all of which was derived from the Bonte Koe toll treatment project with De Beers in South Africa. Firestone made an operating profit of GBP0.7 million before impairment charges of GBP11.2 million related to the termination of operations at the Bonte Koe project and Firestone's other alluvial projects in South (MORE TO FOLLOW) Dow Jones Newswires July 21, 2010 06:55 ET (10:55 GMT)